If there is one thing we can’t stand, it is to have personal debt attached to us. Specifically, debt that we are also paying interest on. So, when we set out to buy our family car, we knew that we wanted to get it paid off quickly.
A little background on us before I dive in. We are a family of four, living on one income while categorized as “middle class citizens”. I would say that we are frugal, in the sense that we buy only what we can afford. However, at the same time, we are not extreme “couponers”. And we also do enjoy “finer” things in life (you know like vacations and stuff), from time to time.
I say this because I know that everybody’s financial situations are different. What works for us and our family may not work for you. However, I’m going to share what we did that allowed us to pay off our car loan faster. Hopefully, you’ll be able to take something away from this that will help you or your family.
Before diving it, it is worth mentioning that you should check your loan paperwork (if you’ve already purchased the car). As some banks actually charge an early payoff fee. Meaning, if you pay your loan off too soon, you may be charged a fee for doing so.
The five things we did to pay off our car loan faster included:
- Pre-Plan the Car Purchase
- Cut Unnecessary Expenses
- Had Our Money Work for Us
- Set a Goal
- Put as much Extra Money Towards the Loan
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1. We Pre-Planned the Car Purchase
If you were to look at our computer history, at any given time, within the two years leading up to our car purchase, you would have seen hundreds of searches for cars, SUVs, trucks, etc. It was my husband’s obsession and a running joke in our household for years.
But, it was single-handedly one of the best things he could have done. He read review upon review, looked at interiors, exteriors, everything. And, from there, we narrowed down our car choices and only focused on those vehicles.
So, you might be wondering, that’s great and all … but what does that have to do with how to pay off car loan faster?
Well, once we knew the type of vehicle we wanted to buy then we could work on the hard part. Saving for it. And since we would be upgrading our car to a SUV, we were going to need a sizable down payment.
We certainly weren’t going to get much from our “trade-in”. A 2005 Cobalt, that yes, he had been driving for 14-15 years. Therefore, the money would need to come from our personal savings account.
I know that this point is more so for those that haven’t YET bought a car. However, I also know some of you reading this may just be entering the market to purchase a car. If your car is in good working order and can reliably get you from point A to point B, safely. Then, if you can, wait until you can get a decent down payment to put down on your next car.
This will not only make your monthly installments lower; it’ll also affect your interest payments. Since your loan amount won’t be as high it also means you won’t be paying as much interest either.
2. Cut Unnecessary Expenses
When we looked at expenses to cut, one of the first things to go was the TV. Given that we barely watched TV and the rise in streaming services, it just made sense. It saved us about $70 or so per month. So, not all that much, but every little bit counts, when you’re on a mission to pay something off.
Some other items that were cut back included dining out, purchasing new clothes/shoes and other miscellaneous items we didn’t really need.
Cutting these expenses really helped us save for the car in the first place. And then again, allowed us to pay off our car loan faster – in just one year’s time.
3. Had Our Money Work for Us
I mentioned that we are on one income. The year we paid off the car, I can say it wasn’t like we were bringing in six figures. So, this meant that we needed to be strategic. We needed to figure out a way to stretch our money and get it to work for us.
A few things we did to get the most out of the money we had was:
- Open new bank accounts to get the cash bonuses
- Utilize credit card sign on bonuses and points
- Take advantage of rebate programs, such as Rakuten
And one thing to keep in mind is that sometimes these tactics are taxable. Such as opening a bank account for the cash bonus. So, if you do decide to do this, just remember to gather those tax forms while filing the next year’s taxes.
Open New Bank Accounts to Get Cash Bonuses
This can be a hassle as many bank accounts have requirements. Things such as making monthly payroll deposits, minimum balances and such. However, sometimes the bonus is decent enough where it can make sense to take advantage of these new account bonuses.
One of the bank accounts we opened that year gave us a bonus of $400. This bonus, alone, just about paid for the interest we acquired for the year we had the car loan. So, it was as if the money was loaned to us for free. Win-win.
One thing to note is that we don’t go crazy opening bank accounts. Like I mentioned above, this money is taxable and usually categorized as “interest earned”. Not to mention, it can take quite a bit of work. Between opening the account, meeting the requirements and then remembering to close (if you choose to) the account. But, every now and then, it can give a little boost in funds.
Credit Card Sign on Bonuses and Points
When it comes to credit cards and points, I only recommend this IF you pay off your balance each month. Otherwise, all you end up doing is paying gobs of interest to the credit card companies.
We are avid credit card users and just about everything that can get charged goes on our cards. We have credit cards that give us 3-5% back of our charges each month. The cash back comes in the form of points, that we can then redeem for cash. This cash can be used for anything, including cashing in to pay off a car loan faster.
Since, we charge nearly everything to our cards we tend to gather points pretty frequently. However, I just want to stress that we do not carry over balances. Everything we charge gets paid off the following month. This is how to get the absolute most out of your credit cards.
Find yourself struggling with credit cards or scared to get one? Here’s a few tricks I did, while in college, to condition myself to use them in the best way possible. Click here to read.
Rebate Programs, like Rakuten (formerly Ebates)
Thinking there is no way that using Rakuten is going to really help pay down a car loan faster? Theoretically, you are right. It’s not going to put a huge dent in your loan repayment. However, when you are on a mission to pay something off quickly, every dollar counts.
We use Rakuten all throughout the year, but especially during holidays, such as Christmas. As that is when huge cash back bonuses (10-20%) really come into play.
Below are screenshots of some of the cash back we have earned.
As you can see, it’s not much an astronomical amount, at all. However, it’s a totally free website to use. And when coupled in with our credit card points, really allows our money to stretch further.
If you don’t have a Rakuten account, you can sign up here.
4. Set a Goal to Pay Off Car Loan Faster
It’s easy to get so caught up just in making your monthly payments. However, when trying to pay off a car loan faster (or any loan for that matter), it’s important to not only set a goal. But to also stick to it, as much as you can.
So, what we did is we prepared a debt pay down sheet, such as the ones listed below. You’ll notice that each sheet has a “goal pay off date” and “goal payment”.
But the real benefit is in the monthly tracking. There is just something about watching a debt balance dwindle that keeps you motivated. Motivated to get it paid off as soon as possible.
If you are interested in these debt pay down and debt tracker sheets, they are both available over at my shop. The debt tracker can be found as part of 140+ page home binder. And the debt pay down is one page out of 18, from a finance planner that can be found here.
5. Put as much Extra Money Towards the Loan, as possible
The final thing we did, which is to be expected, is put as much extra money as we could towards the loan. Many months, we were able to nearly double our monthly payment. I do understand that this isn’t feasible for everyone.
However, following the theme of this post, every little bit counts.
So even if you can throw an extra $50 to the loan a month. Make one extra payment a year. Put one large payment to the loan (such as when your tax return comes or an employer bonus). It all makes a difference, in the end, and will help get the loan paid off faster.
One thing I want to note here is that you want to make sure that your extra payment is being credited to your principal amount. Our bank automatically did this, but I know from working at a bank, that all might not have this in place.
These are the five things that we did that allowed us to pay off our car loan in just a year’s time. If you have ever paid off a loan sooner than expected, let us know in the comments what you did to do so. That way we can all help each other out 😊.